New Company, New Plan, Special Participation Date

[Zoey]

A new company, established in July 2018 (calendar fiscal year) wants to set up a new 401k plan for 2018.  Assuming they are too late for a Safe Harbor plan for 2018 (since the company was established with more than 3 months left in the year (to qualify for the exception to the 3 month rule) and now won't meet the notice requirement for a 10/1 effective date), we are going with a traditional 401k plan, with safe harbor provisions effective for 2019.  

The employer doesn't want his part-time employees in the plan.  EVERYONE however, has the same July 2018 hire date, including the owner.  Has anyone used language in the plan document, stating something to the effect that everyone employed on July 1 2018, shall be eligible, providing that they are 21 years old and would "normally work 1,000 hours during the plan year"?  Do you think this will fly?  

(I've used the age only requirement condition before, but haven't used an hour requirement condition under the special participation date before.)

Thanks in advance!

[Mr Bagwell]

No, that won't fly.

How many part-timers are you really talking about?  Do you really think that part-timers are going to participate anyway?

Make everyone eligible upon the July 1, 2018 date.  Do the 21 and year or service after July 1, 2018 to hold out the part-timers.  Keep it simple.

And don't let that plan become top heavy in year one (2018)!  I hope the owner doesn't want to defer much in 2018.

[Zoey]

Dental office - 1 owner, 2 full time ee's and 3 part time ee's.  It will be top-heavy right off the bat, I'm sure.  

If we let in the part-timer's and they don't contribute (as we suspect they won't), then no doubt there will be more than top-heavy issues.  Chances are the ADP test will fail as well.

I was trying to find a way around it, but I wasn't hopeful.  

Thanks.

[Larry Starr]

2 hours ago, Zoey said:

A new company, established in July 2018 (calendar fiscal year) wants to set up a new 401k plan for 2018.  Assuming they are too late for a Safe Harbor plan for 2018 (since the company was established with more than 3 months left in the year (to qualify for the exception to the 3 month rule) and now won't meet the notice requirement for a 10/1 effective date), we are going with a traditional 401k plan, with safe harbor provisions effective for 2019.  

The employer doesn't want his part-time employees in the plan.  EVERYONE however, has the same July 2018 hire date, including the owner.  Has anyone used language in the plan document, stating something to the effect that everyone employed on July 1 2018, shall be eligible, providing that they are 21 years old and would "normally work 1,000 hours during the plan year"?  Do you think this will fly?  

(I've used the age only requirement condition before, but haven't used an hour requirement condition under the special participation date before.)

Thanks in advance!

I''m confused.  A calendar year taxpayer/plan. This is September.  I could MORE THAN 3 months left until 12/31.  What is the problem? You are aware that for a NEW 401(k) plan, you have to set up the SH by 10/1, right?

Now, that is separate from the other issue you raised, but it appears the other issue is an issue only because you think you can't have a SH plan, which you can, which I think makes the other issue go away, right?

[Jim Chad]

How solid a requirement is the notice 30 days before start?  Is best efforts good enough?

[Zoey]

Larry...Yes, I am aware that a new plan has until 10/1 to establish a safe harbor plan, but isn't the 30 day notice requirement required to be distributed by 9/1 then?  

Jim...I agree...that was why I thought we were too late for the safe harbor.

Thanks to both!

[Kevin C]

The SH notice is required to be provided a reasonable period of time before the beginning of the plan year.  30-90 days before is deemed to be a reasonable period of time.  For less than 30 days, it's a facts and circumstances determination.  See 1.401(k)-3(d)(3). 

[Kevin C]

For the part time issue, our VS document has an option that allows shorter eligibility requirements for full time employees while requiring part time employees to complete a year of service.  The few times we've used it, it has been no minimum service requirement for full time and completion of a year of service for part time.  Does your document allow something like that?

[Zoey]

Regarding the notice...hmm...interesting.   Thanks Kevin.  I would be interested in others thoughts on that, as I would think that it would come down to interpretation.  I would be willing...if I can crank out the document and notice by the end of the week.  It would still reasonably allow enough time for employees to enroll and establish deductions.  Providing that all of the stars align (investment company can set it up by 10/1, payroll deductions can be set up to go, investment advisor can help the participants with their investment elections, etc).

Regarding the VS document...wow, really (different for full-time vs part-time)?  We use FTWilliam.  The prototype has a blank next to, "Describe the conditions or limitations and indicate for what purposes (e.g., Elective Deferrals, Matching, etc.) the conditions or limitations apply", where you can write in restrictions next to the special participation date.

[RatherBeGolfing]

48 minutes ago, Zoey said:

Regarding the notice...hmm...interesting.   Thanks Kevin.  I would be interested in others thoughts on that, as I would think that it would come down to interpretation. 

The plan can start 10/1.  The SHN should be distributed within a reasonable period before the beginning of the plan year.  If the plan is established on 9/25, is it reasonable to distribute the SHN 25 days before the plan was even established?  Larry and Kevin are both correct.  You have until 10/1 to start the plan and 30-90 day period for the SHN is when it is deemed reasonable.  If you establish the plan during September and don't drag your feet on the notice, you are fine.  Personally, I wouldn't rush to crank anything out.  Let it take the time it takes to make sure nothing is missed.  There is nothing worse than rushing something out and having come back to bite you because you overlooked something.

1 hour ago, Zoey said:

Regarding the VS document...wow, really (different for full-time vs part-time)?  We use FTWilliam.  The prototype has a blank next to, "Describe the conditions or limitations and indicate for what purposes (e.g., Elective Deferrals, Matching, etc.) the conditions or limitations apply", where you can write in restrictions next to the special participation date.

Call FTW support and ask to speak to the document department.  They have excellent people there and they are very quick to call back if they are not available.

 

 

[Zoey]

Thanks RatherBeGolfing, Larry and Kevin.  I appreciate the time you have taken to comment, and I also appreciate your opinions and input.  Because of all of you, I feel comfortable enough to present a safe harbor plan, effective 10/1.

[Larry Starr]

On 9/5/2018 at 10:40 PM, Zoey said:

Larry...Yes, I am aware that a new plan has until 10/1 to establish a safe harbor plan, but isn't the 30 day notice requirement required to be distributed by 9/1 then?  

Jim...I agree...that was why I thought we were too late for the safe harbor.

Thanks to both!

No.  Give it now and you are fine.

[Zoey]

Thanks Larry!  

[Gilmore]

I believe the ERISA Outline Book indicates that with a new plan, the notice can be provided no later than the effective date of the elective deferral portion of the plan.

[Zoey]

Thanks Gilmore!